DALLAS - Federal stimulus funding will provide a cushion for colleges and universities as they scramble to cut costs over the next two years, but prospects for 2012 and beyond are extremely uncertain, analysts at Standard & Poor's said yesterday.

At a conference on higher education in Dallas, the rating agency presented findings from key analysts on how colleges and universities might cope with a continuing downturn.

"We are generally seeing that the public universities are getting a little bit of cushion from the stimulus," said Susan Carlson, director for higher education and nonprofits at Standard & Poor's. "There's a bit of a cushion for 2010, 2011 from the stimulus, then you hit a cliff."

"If you're a private university, that cliff, depending on your endowment draw formula, could hit in 2011," she said. "Everybody needs to be prepared right now. There's a lot of slash and burn."

In addition to declining endowments, universities are suffering from the recession that has devalued homes on which parents traditionally borrowed to finance college tuition, and parents have lost their jobs. Community colleges remain great bargains, analysts noted, but enrollment there is uncertain as well.

"The managements with which we feel most comfortable are saying that they're going ahead and reducing costs," Corson said. "They're planning to use any stimulus money very effectively because they don't know what's going to happen in 2012, and they're trying to put themselves in a position as good as possible for the uncertainty coming along."

Despite the upheaval, Standard & Poor's has not dropped any public or private universities rated triple-A from that category since the recession began, noted director Jessica Matsumori. The agency rates 18 private universities AAA. Three public university systems earn the top rank: those in Michigan, Texas and Virginia.

In the first quarter of 2009, analysts have issued one upgrade - Odessa Junior College in Texas from BBB-plus to A-minus - four downgrades and 15 outlook changes.

Changes in the banking sector have kept analysts extremely busy, Carlson said.

"It has been wild," she said. "Our sector has never been busier. First, we're doing the auction rate, then we're doing the [variable-rate demand bonds], then we're doing the VRDBs because they don't like the underlying liquidity bank. Now, we're doing the VRDBs that are shifting terms of dailies to weeklies to a year, to 13 months, to fixed-rate terms."

And the ongoing hardship in the financial world is still hitting universities, she said.

"We were talking this week with a triple-A-rated institution who said their bank wanted to raise [the liquidity facility rate] from 18 basis points to 90," Carlson said.

More institutions are likely to follow the example of the universities of Minnesota and Virginia and issue Build America Bonds, she said. Minnesota offered $35 million of taxable, general obligation BABs that represented the first use of the bonds by a university.

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